Shovel-Ready Broadband Investment, Maybe

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The economy has been shackled by $2 trillion in annual regulatory costs that impede commerce and are a drag on household incomes. Recent public sentiment shows that the public has had enough. The election results tell us that voters want a path for sustained economic growth. That path means undoing harmful regulations that have impeded private investment and reduced well-paying jobs.

One clear example of the economic damage that regulations can inflict has been in the telecommunications and broadband sectors, where the massive scale of FCC’s drag on the economy is documented in a recent study by the American Consumer Institute.

The most egregious of the FCC’s new rules is the cynically named network neutrality, the rule that prevents an Internet service provider from offering some priority services and some free or discounted services. Analysis shows that network neutrality regulations “subsidize content providers at the cost of platform providers… effectively transfer[ing] resources from core providers to edge providers by taking cash out of network investment and putting it into edge company profits.” In fact,  network investments fell by $2.7 billion in the first six months of 2016 compared to the same period in 2014, the year before the FCC adopted its divisive net neutrality order.” That is the kind of investment suppression that opponents of network neutrality predicted. Moreover, major telecommunications companies have seen a decline in the number of broadband subscribers each consecutive quarter since the regulations took effect.

In addition, the study details how other recent FCC regulations are strangling network investment. Nearly two years ago, the FCC declared Internet Service Providers to be common carriers under Title II of the Act, subjecting them to the rococo regulatory traditions of the 1934 Telecommunications Act – all to the delight of entrenched regulators and the self-promotion of their careers. In addition, the FCC is considering blocking wireless innovations such as “sponsored data,” where consumers can potentially receive free online content from Hulu, ESPN and others without the transmitted bits counting against their wireless plan’s data allotment.

The FCC’s Title II regulations have perverted the concept of technology transition, requiring network carriers to invest in and maintain outdated copper infrastructure for voice-centric services longer than necessary. If the carrier wants to modernize its network, it must obtain permission from regulators and a nod from its competitors, because the FCC empowers competitors to resist upgrades that would require them to move to more modern all Internet-Protocol facilities. This is all Luddite-thinking from regulators claiming their actions will spur technological innovation.

In 2015, the FCC launched an inquiry into incumbent carrier business data services (BDS) pricing. The BDS marketplace is characterized by competing networks that offer services to businesses. The market was found to be competitive and to exhibit price competition about a decade ago, except in some rural areas where prices were subjected to regulation, and the FCC’s recent data found most incumbent circuits to be within 90 feet of a competitor. Now regulators are considering regulating the price and terms of private BDS contracts between private businesses. However, BDS price regulation will reduce a carrier’s flexibility to offer volume prices to its customers, and it will undermine the viability of new investments because carriers know the FCC can arbitrarily reset prices to non-compensatory levels. What rational incumbent — or competitor for that matter — would risk investing in a network subject to command and control pricing?

Overall, the study shows the host of new regulations will reduce total investment in infrastructure and suppress deployment of consumer broadband services, while dampening the creation and preservation of jobs, as well as financially benefiting large and already very profitable edge companies.

If the goal of the incoming Congress and administration is to revitalize the nation’s infrastructure and create well-paying jobs, public policies can reduce onerous regulations that discourage private investment and competition. Imagine shovel-ready projects, and increased economic growth and infrastructure investment without costing the taxpayer a dime.

Steve Pociask and Alan Daley write for the American Consumer Institute, Center for Citizen Research, a nonprofit educational and research organization. The Institute is a member of the FCC’s Consumer Advisory Committee, but the opinions expressed here are strictly its own. For more information about the Institute, visit www.theamericanconsumer.org or follow us on Twitter @consumerpal.